President sends 2011 budget to court, as LH suggested

Last Friday, La'o Hamutuk wrote a letter to President Jose Ramos-Horta (Tetum original) urging him not to promulgate the $1.3 billion 2011 State Budget that Parliament passed at the end of January.

On 7 February, the President asked the Court of Appeals to review the legality and constitutionality of this law, which is a 98% increase over the original 2010 State Budget. We have translated and posted the President's request and the Court's letter to Parliament on our website, which also links to Portuguese originals and other relevant documents. The Court must decide by 17 February; we hope it will wisely advise the President to return the Budget Law to Government and Parliament for redrafting.

The main points in La'o Hamutuk's letter are:

• Unsustainable spending threatens the goals of the Petroleum Fund Law.

Timor-Leste will spend $1,306 million dollars under this budget, including $1,055 million transferred from the Petroleum Fund during 2011 and $141 million carried over from unspent appropriations in the 2010 Budget, which also comes from the Petroleum Fund. This increase is not justifiable, especially since recent exploratory oil wells were dry. 

• The Infrastructure Fund is a bad precedent.

Nearly half of this year’s budget is for the Infrastructure Fund and the Human
Capital Development Fund. The Government says it is establishing these Special Funds
according to the 2009 Budget and Financial Management Law, but this interpretation of that law undercuts the Constitutional powers of Parliament "To deliberate on the State Plan and Budget and the execution report thereof" and "To monitor the execution of the State budget.” We also believe it is too soon to allocate funding to execute the National Strategic Development Plan (PEDN), which Parliament  has never seen. 

• The Heavy Oil Electricity Project could be a black hole.

This Budget allocates $448 million for heavy oil power plants and transmission lines, but the Government has not provided enough information. For years, the project has been plagued by misguided concepts, lack of planning, irregular procurement, unreliable contractors, unmet promises, environmental negligence and pervasive secrecy. Timor-Leste has already spent more than $100 million on this project, and before spending a half-billion dollars more, we encourage the President to examine it carefully.

• The oil price predictions are not prudent.

In the 2011 State Budget, the Government assumed future oil prices 50% higher than they assumed last year. This  violates the  Petroleum Fund Law that “All assumptions made shall be prudent, reflect international best practice and be based upon internationally recognized standards.” Policies based on wishes rather than prudence could squander the nonrenewable resource birthright of our children.

• Please exorcise the “Resource Curse.”

The level of spending in the 2011 budget brings Timor-Leste into the “resource curse” and threatens our future financial stability. The State institutions funded by this budget should ensure that the people’s resources are used for the people’s benefit – not for narrow election objectives.
     Therefore, we believe that you, as “the Head of State and the symbol and guarantor of national independence and unity of the State and of the smooth functioning of democratic institutions,” as described in our Constitution, should use your powers to rescue our State from economic instability and future poverty, as financial insecurity also threatens our national independence and unity.

The President asked the Court for advice on three questions:

• Is creating the Special Funds via the Budget Law, rather than with a separate specific law, permissible under Constitution Article 145.2?
• Does creating the Special Funds without specifying detailed expenditures to be paid from these funds violate the transparency requirement specified in Constitution Article 145.2?
• Does transferring $321 million more than the Estimated Sustainable Income without a detailed explanation of why this is in the long-term interests of Timor-Leste violate Article 9 of the Petroleum Fund Law, which has superior force?

The Court ruled five days later.

On the evening of 11 February, the Court of Appeals issued a 55-page opinion (also Portuguese). After soliciting and summarizing the views of President Jose Ramos-Horta, National Parliament President Fernando LaSama Araujo and Prosecutor-General Ana Pessoa Pinto, the three judges Claudio de Jesus Ximenes, José Luís da Goia and José Manuel Barata Penha cited extensive scholarly research and previous cases, concluding

"For these reasons, the judges of the Court of Appeal have deliberated that the Decree of the National Parliament No 45/II approving the 2011 State budget submitted to the President of the Republic does not violate Articles 145.2 and 115 of the Constitution, nor Article 9 of Law 9/2005 of 3 August (on the Petroleum Fund)."

The President promulgated the budget the following day, before leaving for a week in Israel and Palestine.  La'o Hamutuk believes that even if the budget is legal and constitutional, that doesn't make it good policy.